Freddie Mac posted a $4.4 billion loss during the third quarter, up from a year-ago loss of $2.5 billion, marking its worst quarterly loss in more than one year.
The poor figure is the latest sign of how the shaky U.S. housing market continues to bleed red ink for the mortgage-finance giants that the government rescued more than three years ago.
The loss forced Freddie Mac to seek $6 billion in new aid from the Treasury, including $1.6 billion that it borrowed to pay required quarterly dividends back to the government. The loss brings Freddie's total cost to taxpayers to $56 billion.
In a statement, Freddie Chief Executive Charles E. Haldeman Jr. attributed the poor performance to "the weak housing market as well as challenging financial market conditions."
Losses at Freddie Mac had eased over the last year, with the company returning more money to the government than it borrowed in each of the previous four quarters. The losses being reported Thursday are a legacy of loans made as the housing boom turned to bust, and loans being made today are expected to be profitable.
Still, the latest hit signals the continued costs of a housing market that is struggling to find a bottom. While mortgage delinquencies have stopped growing, Freddie and Fannie are now selling tens of thousands of properties that they are taking back through foreclosure. As home prices fall, they will take bigger losses on those sales. Freddie sold around 25,000 homes during the third quarter and acquired another 24,000 through foreclosure.
Freddie's loss was driven in part by a $3.6 billion increase in its loan-loss reserves. The company had more than $119 billion in non-performing single-family mortgages at the end of September, up from less than $116 billion at the beginning of 2011.
Losses are also rising because Freddie hasn't been able to recover as much money from mortgage insurance firms "due to the deterioration in the financial condition" of certain firms. Last month, for example, state insurance regulators took over PMI Group Inc., one of the nation's largest mortgage insurance companies. Freddie requires mortgage insurance on loans that have less than 20% down payments, and insurance companies reimburse Freddie for a share of the losses when loans default.
Sharp declines in long-term interest rates during the third quarter led to an additional $4.8 billion loss on the value of derivatives investments that are used to hedge against swings in interest rates.
Fannie and Freddie have been pledged unlimited support from the U.S. Treasury through the end of next year, and the government has agreed to inject up to around $300 billion after that to keep the firms afloat and stabilize mortgage markets.
The companies are required to make 10% annual dividend payments to the Treasury on the money they receive from the government every quarter.
With the most recent draw on Treasury funds, Freddie Mac has now borrowed $71 billion from the government, and it has paid nearly $15 billion back in dividends. Fannie Mae (FNMA), which has yet to report its third quarter financials, has taken nearly $104 billion in aid and paid back around $15 billion. The net cost to the taxpayers for bailing out both firms stands at $145 billion.
